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Also Mark Cuban: “The tragedy of SVB is that its not the wealthy taking the hit. It's the thousands of companies who borrowed from SVB and were required to k

by CPLX 4y ago

Also Mark Cuban: “The tragedy of SVB is that its not the wealthy taking the hit. It's the thousands of companies who borrowed from SVB and were required to keep their cash in SVB. Those entrepreneurs and their employees and vendors are feeling the pain. And they are who the Fed should protect” https://twitter.com/mcuban/status/1634427092824629251?s=20 https://twitter.com/mcuban/status/1634427092824629251?s=20

credit_guy 4y ago
I'm not sure those "thousands of companies" described will take a loss. The situation Mark Cuban talks about works like this: most small/medium companies finance themselves with a bank loan (and equity). The bank loan is reviewed periodically (e.g. annually), and renewed appropriately. The loan is used to pay employees, suppliers, and for other expenses. The amount of the loan, is held at the same bank. It doesn't need to be strictly speaking, but a bank does not like to advance you a loan, so you can take it, cash it and deposit it at a different bank. Ok, so now a company has a loan (asset for the bank, liability for the company) and a deposit (liability for the bank, asset for the company). The amounts don't match perfectly, due to ongoing payments and receipts. Now, there's something called "netting agreement". The Fed has a short intro on that [1]. I don't know if every single company has one set up, but going forward they should think hard if they decide to not set it up. If you have such a netting agreement and the bank fails to pay you on the deposit, then the amount you owe them on the loan decreases dollar for dollar. Of course, it's still inconvenient for you in terms of day to day operations, but in the end you should not lose money. You should not have any issues to start banking with a different bank, if you can show them the netting agreement. [1] https://www.newyorkfed.org/medialibrary/microsites/fmlg/files/Millerspresentationonnetting.pdf https://www.newyorkfed.org/medialibrary/microsites/fmlg/file...
- tomcam 4y ago
  Great explanation. Username definitely checks out.

by CPLX 4y ago

credit_guy 4y ago

I'm not sure those "thousands of companies" described will take a loss. The situation Mark Cuban talks about works like this: most small/medium companies finance themselves with a bank loan (and equity). The bank loan is reviewed periodically (e.g. annually), and renewed appropriately. The loan is used to pay employees, suppliers, and for other expenses. The amount of the loan, is held at the same bank. It doesn't need to be strictly speaking, but a bank does not like to advance you a loan, so you can take it, cash it and deposit it at a different bank. Ok, so now a company has a loan (asset for the bank, liability for the company) and a deposit (liability for the bank, asset for the company). The amounts don't match perfectly, due to ongoing payments and receipts. Now, there's something called "netting agreement". The Fed has a short intro on that [1]. I don't know if every single company has one set up, but going forward they should think hard if they decide to not set it up. If you have such a netting agreement and the bank fails to pay you on the deposit, then the amount you owe them on the loan decreases dollar for dollar. Of course, it's still inconvenient for you in terms of day to day operations, but in the end you should not lose money. You should not have any issues to start banking with a different bank, if you can show them the netting agreement. [1] https://www.newyorkfed.org/medialibrary/microsites/fmlg/files/Millerspresentationonnetting.pdf https://www.newyorkfed.org/medialibrary/microsites/fmlg/file...

tomcam 4y ago
Great explanation. Username definitely checks out.